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Brexit

With the aftermath of the vote to leave the European Union dominating political debate in the UK, the Government is now in the process of renegotiating its relationship with the EU, with the final date for ‘Brexit’ set as the 29th March 2019.

Although the final form that it will take is by no means certain, Brexit will doubtless have a significant impact on the actuarial profession, on issues such as Solvency II, migration, demographics, regulation, and beyond.

The IFoA will continue to play an active role in informing the important negotiations and debates that must now take place, including the ongoing investigation into the framework for insurance regulation, given its many primary and secondary impacts on the wider public.

In the run up to the EU referendum, the IFoA sought to inform the debate, via our published research on the impacts of migration on the state pension system. This showed that there could be some big choices for the Government as to whether to increase National Insurance contributions, the State Pension Age, or alternatively, reduce the level of state pension post-Brexit.

Brexit challenges and opportunities for the profession

Managing macroeconomic effects

No Deal: The National Institute of Economic and Social Research (NIESR) predicts that a ‘No Deal’ Brexit will have an immediate negative effect on the UK economy, potentially causing a large shrink in UK GDP.

White Paper: A Brexit along the lines of the UK Government’s White Paper is predicted to lead to a smaller negative impact on the UK economy following Brexit.

Trade relationships with EU and non-EU countries

No Deal: With no new trade agreement with the EU, the rules of the World Trade Organisation would apply. Mutual recognition and access to the single market would end, necessitating a new regime, however the UK government has indicated it would accept some European Union rules allow EU firms to operate in the UK for up to three years.

White Paper: The Government aims to secure the freest and most frictionless trade possible in goods with the EU outside the single market via a new free trade agreement. Mutual recognition of professional qualifications would continue, however services will not be included in the new customs arrangement.

Maintaining high regulatory standards while encouraging innovation and growth

No Deal: The UK would cease to be a member of dozens of regulatory agencies that govern many aspects of daily life. It will be particularly challenging for the UK to assume this responsibility all at once if a 'no deal' scenario also means there is no transition period.

White Paper: Under the terms of the White paper, there would be regulatory arrangements for financial services, but these would not replicate the EU's passporting regimes (which enables EU firms that are authorised to trade freely in any EU state), meaning that the UK and the EU will not maintain current levels of access to each other's markets.

The impact on actuaries and their employers

No Deal: There would be an immediate effect on free movement, regulation and cross-border business, however the UK government has indicated it intends to secure the rights of EU citizens living in the UK under a 'no deal' Brexit scnario. The rights of UK citizens living in the EU have not yet been guaranteed. Members would experience significant disruption while new regimes were put in place, including mutual recognition of qualifications and working cross-border.

White Paper: While the white paper will limit the immediate effects of a Brexit on the profession, the end of passporting, the lack of regulatory equivalence, and freedom of movement are potential challenges.

We will continue to monitor and react to the opportunities and challenges that Brexit presents, and offer information and assistance to policymakers, considering the issues from the perspective of the public interest, free from corporate or political bias.

For example, since the referendum we have worked closely with the Treasury Select Committee, on its inquiry into EU Insurance Regulation. A re-examination of the UK’s insurance regulation presents an opportunity to assist the Government in ensuring the framework appropriately balances policyholder security with policyholder value for money, and we will continue to represent the interests of the consumer as the debate evolves.